CASE – 1 THE POSITIONING APPROACH OF HIGH-END JEWELRY STORES
Some industry experts strongly believe that retailers have contributed to an increasing confusion in the positioning of jewelry: “The mass merchants have gone class by making diamonds more affordable to all the income stream, and the upscale merchants have reached down to the masses a bit.”
The blurred positioning of diamond jewelry can be seen by reviewing the sales approaches by retail firms as disparate as Wal-Mart (www.walmart.com), department stores, and Tiffany (www.tiffany.com). Wal-Mart, a chain more associated in buyers’ minds with the sale of inexpensive housewares and clothing, is now leading seller of diamonds costing about $100 or so. Department stores also tend to sell a wide range of popularly priced jewelry to a broad-based market. Tiffany has recently broadened its appeal (and moved somewhat downscale) by opening more stores at mall locations, introducing a Web site, and promoting items ranging in price from $200 to $100,000. Why? A Tiffany spokesperson says, “We believe advertising a wide range of price points helps build long-term relationships with people, including those who merely aspire to be Tiffany customers. In response, a critic of Tiffany’s mass market shift asserts that “by making itself accessible to the lower end, Tiffany has watered down what was once a truly exclusive brand—and there’s no going back.”
Unlike other luxury goods retailers that have responded to increased competition and a fragile economy with price reductions, high-end jewelry stores have not used a deep discounting strategy. They recognize that they cannot win price wars against discounters, or department stores. These jewelers also fear that price reductions might “tarnish their high-luster image.” They agree with retail analysts who suggest that discounting “becomes a downward spiral. As soon as stores start discounting, people wait for the sales. With luxury jewelry, some of what you're paying for is exclusivity, and part of the exclusivity is bolstered by the price point. Discounting is completely inconsistent with maintaining that image.”
Instead of following the Tiffany strategy, some high-end jewelers have modified their advertising plans to better target their promotions through media with an affluent readership. For some, this has meant using direct mail, mail-order catalogs, and data-base marketing more intensively. The house of Harry Winston, a two-store chain, draws attention to its merchandise by getting celebrities to wear its jewelry at major televised awards shows. It then faxes and E-mails its best prospects to tell them which items are worn by specific celebrities.
As one senior retail advertising executive states, “I think that quality is more important than ever right now. I think cachet is just as important, but cachet because people believe there’s value there, not because there’s just a name.” There is some statistical evidence of this position. In a recent online survey of 25- to 54-year-olds with household incomes of more than $100,000 a year, the two leading purchase motivators were to (1) buy “things I know will last” and (2) to buy things “for my well-being.”
There are still limits in price setting to the wealthy. The House of Harry Winston’s global marketing director recently reported that it must be concerned with the “anxiety threshold” that customers encounter when shopping for jewelry priced between $6,500 and $10 million. Despite the firm’s appeal to people with a net worth exceeding $2 million, some of these shoppers “quiver with fear” as they enter a store.
Questions:
1. Develop a positioning chart for jewelry. Include Wal-Mart, Tiffany, and department stores with jewelry departments, on the chart. Explain your choice of axes, as well as each store’s positioning.
2. Do you agree that the events described in this case are contributing to the blurred positioning of jewelry retailing? Explain your answer and its ramifications.
3. What are the pros and cons of Tiffany selling items priced as low as $200?
4. As a jewelry shopper, how would you expect the total retail experience to differ in Wal-Mart, department stores, and high-end retailers?
CASE – 2 PIGGLY WIGGLY: A SUPERMARKET FRANCHISING GIANT
Piggly Wiggly (www.pigglywiggly.com) is a franchisor with over 600 supermarket units that span the southern states from Louisiana to North Carolina. Piggly Wiggly franchises about 20 stores in Wisconsin that are owned and operated by Fresh Brands (www.freshbrands.com), a wholesaler that uses the Fresh Brands name. Any independent supermarket can become a Piggly Wiggly franchisee by signing a franchise agreement and paying a percentage of sales as a royalty.
In 2002, Progressive Grocer honored Piggly Wiggly with an Award of Excellence, based on the firm’s successful marketing efforts for its franchisees. The company pays strict attention to such elements as developing specifications for store signs to assure a uniform image, managing a private-label program, arranging for special purchases for its franchisees, planning special promotions, and so on.
Piggly Wiggly provides extensive purchasing assistance for its franchises by arranging for both private-label and national-brand programs. Piggly Wiggly’s private-label program includes about 1,000 products in more than 200 categories. The franchisor handles all of the management responsibilities for its private-label line, including setting product specifications, choosing suppliers, monitoring quality, and package design. Although Piggly Wiggly is owned by Fleming Companies (www.fleming.com), a major grocery wholesaler, its franchised stores do not have to purchase from Fleming. Some of the private-label products are bought from Fleming; others are acquired from various sources.
Through a centralized purchasing program for national brands, Piggly Wiggly franchises have access to deals that would be otherwise unavailable to them. According to Piggly Wiggly’s president, “We do top-to-top meetings with manufacturers in which we present ourselves as a conventional chain. If you counted all our stores as a single chain, we’d be at $4 billion in sales. That gets the attention of the Coca-Colas and the Frito-Lays.”
Through the franchisor’s efforts, its independently owned franchised units can better compete against national chains. As Piggly Wiggly’s president says, “Nothing will replace running a store efficiently. A store has to be clean, well-stocked, safe, have an easily accessible parking lot—that’s the cost of doing business. But, when you're on your own, you need a few things that you can't provide yourself in order to compete with the big chains. You need buying power, a recognizable name, and marketing power that goes beyond one store in one market. That’s where we come in. We’re the icing on the cake.”
Piggly Wiggly’s mascot, Mr. Pig, has high awareness throughout the South. Franchisees can even borrow a Mr. Pig costume to use at local parades and events. Piggly Wiggly employs field representatives to periodically visit each franchise location and apprise franchisee operators and their staffs of its current marketing programs. Store operators can also review the programs at a dedicated Web site, Pignet.com. One recent program featured a Mr. Pig Pack of three Kellogg cereal varieties—and Coca-Cola vending machines at Piggly Wiggly locations showing Mr. Pig drinking an ice-cold bottle of Coke Classic.
In contrast with its southern stores, the units in Wisconsin use the Fresh Brands name and do not participate in some promotions with a distinct southern emphasis. However, these units use the same logos and trademarks as the southern stores. Many of their promotions involve the Green Bay Packers, the Milwaukee Bucks, and the Milwaukee Brewers sports teams.
Questions:
1. As an independent supermarket operator, would you want to become a Piggly Wiggly franchisee? Why or why not?
2. What are the advantages to Piggly Wiggly of having franchised outlets instead of its own stores? The Disadvantages?
3. What criteria should Piggly Wiggly use in evaluating potential franchisees?
4. Should Fleming require Fresh Brands to use the Piggly Wiggly name and all of its promotions? Explain your answer.
CASE – 3 3-D COMPUTER-ASSISTED DESIGN COMES TO RETAILING
While some retailers have yet to try three-dimensional computer-assisted design (CAD), others such as Burger King (www.burgerking.com) and Eddie Bauer (www.eddiebauer.com) have extensively used 3-D CAD to look at different combinations of colors, fixtures, lighting, and even interior layouts of their stores. While engineers and designers have used CAD for more than 10 years to draw store plans electronically, 3-D adds the perspective of depth. This makes it much easier to visualize a drawing. According to the president of AutoDesSys (www.autodessys.com), a provider of 3-D modeling technology, “It’s where the future is. Whatever you can do with photographs, you can do with 3-D programs. For a photograph, you need the real thing. With 3-D, you can illustrate virtual situations.”
When Burger King wanted to get a focus group’s reactions toward a new store design, a 3,300-square-foot, 1950s-style diner, it showed the concept to the group using 3-D computer-assisted design and a video simulation. The focus group could react to the idea without leaving their chairs and without an actual prototype being built. Digital Sculpture, the firm that prepared the video simulation for Burger King, was given hand-drawn sketches, color swatches, graphic boards, and menu boards in digital format. It put these materials into a computer model to devise the 3-D effect. The entire process took Digital Sculpture just over one week. Peter Scott, the president of Digital Sculpture, noted that, “The design was such a radical change that any retailer would hate to built it and be dramatically off. This technology allowed them to do it more cheaply with as much feedback as if consumers were in the store.”
Aside from the cost savings, a major research advantage of the 3-D CAD format is its objectivity. The creative director of a brand imaging firm says that hand-drawn sketches are extremely subjective: “By the nature of it, you're going to choose a flattering perspective and make things look good. If there’s something you don’t understand or haven’t thought through, you won't put it in.”
Another important application of CAD to retailing is in the area of space management and assortment planning. JDA Software (www.jdasoftware.com), for example, recently developed software for supermarkets and suppliers that measures how product placement affects sales: “Whether you're talking about bakery, produce, or health and beauty, you can plug in the sales, units, and other numbers and measure your space-to-sales productivity. So you not only have the 3-D capability, but analytical capability on top of that.” A supermarket can use this software to test alternative layouts and assortments. It can then use these designs to reconfigure its space to give additional shelf-facings to high productivity products departments. A supermarket can also more easily design space to be used differently throughout the year. The space used for lawn furniture in the early summer months can be set up for back-to-school specials in August and early September.
Liquid Presence used 3-D animation software to create a virtual grocery shopping environment for supermarket Web sites. The company can include such audiovisual effects as showing produce being misted with water to stay fresh and allowing shoppers to select among various musical selections while shopping on the Web. In the future, Liquid Presence foresees incorporating touch and digital-scent devices to the Web experience. “Customers could actually simulate squeezing tomatoes and smell fresh-cooked bread right at their home computer.”
Questions:
1. Is the new high-tech research environment going to eliminate the use of human researchers? Explain your answer.
2. What are the pros and cons of using 3-D CAD systems for marketing research purposes versus traditional focus groups?
3. Describe the ideal marketing research uses for 3-D animation software in the creation of a virtual grocery shopping environment for supermarkets.
4. Devise a short consumer questionnaire for Burger King to use in assessing its 3-D CAD simulations.
CASE – 4 DOLLAR GENERAL SEEKS TO BOUNCE BACK FROM FINANCIAL WOES
In an April 2001 press release, Dollar General (www.dollargeneral.com) used the term accounting irregularities to describe why its 1998, 1999, and 2000 earnings would have to be revised downward. In January 2002, the firm disclosed that its combined profits for the three years were $100 million less than previously reported. It also said that it would spend $162 million in 2002 to settle stockholder lawsuits.
At a 2002 meeting of security analysts, Dollar General executives discussed the results of the discount variety chain’s sale of perishables and new programs aimed at making its inventory management more efficient. According to Dollar General’s chairman and chief executive officer, “In this year of silence, we truly have been busier than a bumblebee, and productive.” For fiscal 2002, Dollar General had impressive productivity: Overall sales were up 17 percent, and same store sales growth was 7.3 percent.
Dollar General’s vice-president of merchandising reported that the chain’s sales of food, paper products, and pet food had increased 22 percent. As a result of the strong sales of perishables, Dollar General expanded the number of stores with refrigeration units from 400 to 1,400 in 2002. At the end of 2002, it would also sell bread in 6,000 stores—an increase from 3,800 stores the prior year.
Why are perishables so important? Dollar General’s refrigerated perishables products (which include milk, eggs, hot dogs, luncheon meats, and frozen items) are delivered by independent wholesalers: “Our customers love it. The average transaction size in the cooler refrigerated-unit stores is significantly higher.” Because of this, Dollar General added 80 new perishables products in 2002.
The chain is applying strategies to make inventory management more efficient. It has a new markdown policy for apparel and seasonal goods that helps foresee oversupply and take markdowns earlier. In the health-and-beauty aids department, vendors are shipping smaller quantities to better reflect local demand. Thus, Dollar General has added new items while keeping shelf space in check.
Dollar General plans to better utilize technology and improve its inventory replenishment process. An automatic replenishment system, tested in three stores, will be expanded. The chain has also recently completed the installation of new IBM cash registers and laser scanning equipment at all of its stores. A new satellite network will also simplify ordering at the store level.
In the past, Dollar General tracked its 2,500-item inventory in each store through a pencil-and-paper method of data collection. It new uses wireless, handheld scanners. These scanners can track each pallet, each carton, and each individual piece of merchandise as it enters the warehouse—and as goods are placed on outbound shipments to stores. The warehouse management system verifies that the inventory ordered is in the warehouse, produces purchase orders to replenish this inventory, and even generates labels for the outbound cartons.
Questions:
1. Describe how accounting irregularities can play havoc with a firm’s reputation, supplier relations, and manager morale.
2. Discuss other means of measuring and improving financial performance at Dollar General.
3. What are the financial management pros and cons of Dollar General’s placing greater emphasis on perishables?
4. Evaluate Dollar General’s inventory management initiatives.
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